Insider trader allegedly pays for special treatment inside FMC Devens

Monday

Jun 30, 2014 at 6:00 AM

By Peter S. Cohan WALL & MAIN

Twenty-six miles north of downtown Worcester sits the gates of Ayer's Federal Medical Center Devens. And if the allegations made in a lawsuit are to be believed, one of its temporary residents, convicted insider trader Raj Rajaratnam, has been breaching those gates by wiring money to his fellow inmates in exchange for special treatment.

Before getting into the details, let's visit a scene from "Goodfellas." This 1990 Martin Scorcese film portrayed mobster Henry Hill, whose biggest crime was a $6 million theft from the airline Lufthansa at New York's Kennedy Airport. Mr. Hill was sentenced to 10 years in jail. Once inside the jail, he realized that convicts and guards treated Mafia members better than the other convicts — allowing them to enjoy sumptuous meals and special living quarters — thanks to payoffs by crime families.

This movie comes to mind in considering the allegations against Mr. Rajaratnam. Mr. Rajaratnam is a Sri Lanka native and billionaire who used to run a $3.7 billion hedge fund called Galleon Group. On May 11, 2011, he was found guilty of 14 counts of securities fraud and conspiracy and has spent the last few years serving an 11-year sentence.

A case in U.S. District Court in New Haven, Conn. — Malaszuk v. Synamon Management Group LLC — alleges that his former driver was fired for complaining about secret wire transfers that Mr. Rajaratnam ordered him to make to fellow FMC Devens prisoners following his conviction for insider trading. (FMC Devens is a federal prison for male inmates needing specialized or long-term health care.)

The suit was brought against Mr. Rajaratnam, his wife, and Synamon, a company she owns, by Peter Malaszuk, a longtime assistant to the hedge fund manager. The lawsuit claims that for several months the wire transfers were made to 20 inmates at the prison in violation of federal law.

Mr. Malaszuk alleges that he worked for 15 years as Mr. Rajaratnam's assistant at Galleon and after it closed, he was hired by Synamon as a caretaker for real estate in Greenwich, Conn., and as a driver for the Rajaratnam family.

The purpose of the transfers, according to the suit, was to "control such prisoners and obtain special treatment and accommodations in prison."

And those accommodations do bring back memories of "Goodfellas." According to an Aug. 27, 2013, New York Post story, Mr. Malaszuk said Mr. Rajaratnam was "living 'like a king' in prison, where he had a servant, a private bathroom, a balcony, an adjustable bed and his own TV set. He allegedly had a 'prime cell' on the top floor of the prison's hospital ward, usually reserved for the most seriously ill inmates."

The lawsuit alleges that when Mr. Malaszuk visited him at the Ayer prison, Mr. Rajaratnam would often give him pieces of paper with names and inmate numbers for prisoners and contact information for family members to wire money through Western Union. The lawsuit alleges that Mr. Rajaratnam told Mr. Malaszuk to use false names with Western Union for identifying the sender of the funds and told him to destroy the paper — alleging that one time Mr. Rajaratnam ordered him to 'eat that piece of paper' that he gave him with the names. The suit alleges that such conduct violated federal law and was prohibited by Devens.

Terence Lynam, a lawyer for Mr. Rajaratnam, in a statement to Reuters called the lawsuit "patently false," saying it stemmed from a "long-running effort by an embittered former employee to extort money from Mr. Rajaratnam and his family."

Joseph Tacopina, Mr. Malaszuk's attorney, did not respond to a Reuters request for comment, nor did representatives for the U.S. Bureau of Prisons.

If these allegations are true, they raise many questions about what is going on at FMC Devens: Why would the guards and administration at FMC Devens give Mr. Rajaratnam special treatment if only the inmates were receiving wire transfers? Does this mean that the inmates were paying some of their funds to the guards? Or was Mr. Rajaratnam also directing wire transfers to the guards and management at FMC Devens? Is Mr. Rajaratnam still enjoying the preferential treatment described in the New York Post article? If not, where is he living now, and when was he moved there? Are other prisoners receiving preferential treatment in exchange for payment to FMC Devens inmates, guards, or administrators?

The U.S. Bureau of Prisons did not respond to my request for comment.

Peter Cohan of Marlboro heads a management consulting and venture capital firm, and teaches business strategy and entrepreneurship at Babson College. His email address is peter@petercohan.com.